GGB is committed to providing updated news and analysis on our weekly news site,

It Ain't Over 'til It's Over

If the recession has ended, what does it mean for gaming companies

It Ain’t Over ’til It’s Over

The gaming industry’s recession appears to have ended.

That doesn’t mean boom times have returned, or will.

Nor does it mean we won’t experience the dreaded Double Dip.

But the evidence is mounting that growth is resuming—in business volumes, company investment and, we should soon see, in profitability.


Consumer confidence
, one of the best predictors of business for consumer discretionary companies, has been rising smartly.

, though still lagging as is the case coming out of all recessions, is growing. Jobs are the other major economic statistic watched by casino companies.

Gaming revenue. April’s 2.6 percent rise in regional markets was the first since February 2008, as reported in the National Revenue Report published by Fantini Research.

And the growth has accelerated. Eighteen of 20 tracked companies and 30 of 33 tracked jurisdictions have shown improvement in year-over-year comparisons since 2010 started.

Stronger isn’t the same as strong, however. In April, half of jurisdictions and 18 of the 33 operators still had revenues below the previous year.

May showed a continuation of the stabilization of gaming revenues.

Early signs indicate that casinos are finally loosening their capital budgets to buy more gaming equipment.

The initial signs were anecdotal, but now numbers are starting to back them up.

Todd Eilers of Roth Capital recently calculated an inferred demand of 19,300 slot machines in North America in the first quarter, numbers beyond his expectations.

Further, those long-awaited new jurisdictions are finally coming on stream.

Bally announced orders for 3,600 machines and IGT 3,000 in the new Italian VLT market that will total more than 56,000. The first machines ship later this year, and BYI, IGT and other suppliers promise more to come.

Illinois is getting closer to starting up its VLT program, and while market estimates have been scaled back from upwards of 50,000 to 25,000, the games are coming.

And table game supplier Shuffle Master has got to be delighted that Delaware, Pennsylvania and West Virginia will be adding 700 games this summer while still keeping some of their e-tables.

Earnings leverage. Every casino operator and supplier has been promising that all the spending cuts put them in position to dramatically grow profits come the recovery.

Isle of Capri gave us a sense of that in the company’s fourth-quarter earnings just released.

Analyst consensus was that Isle would lose 8 cents a share. One figured a loss of 24 cents. No one calculated a profit greater than a penny a share.

ISLE surprised them all, earning 15 cents a share—and 20 cents operating profit. And that before the economic recovery takes hold and raises revenues.

Balance sheets.
One of the scariest parts of the double-whammy of recession and financial crisis was the risk of bankruptcy of America’s bluest-chip casino companies that had built mountains of debt.

Now, the debt crises are behind; big companies like Las Vegas Sands and MGM Mirage have worked through them.

Mid-size operators like Ameristar have begun reducing debt while Pinnacle has scaled back development to investor-reassuring levels.

Others, like Herbst and Tropicana Las Vegas, have come out on the other side debt-free. More will. And virtually every company has restructured its debt in some fashion.

Suppliers, who didn’t have multibillion-dollar mega-resorts to run up debt, are especially strong.

Bally can pay off its debt with just a partial commitment of its annual cash flow. Shuffle Master nearly so.

Others, like WMS and Gaming Partners International, are net positive in cash on the books.

And TransAct Technologies hasn’t a penny of debt while it enjoys $10.7 million in cash and is generating $6 million in cash flow and growing.

No wonder TACT announced a share repurchase plan that could buy in 14 percent of its shares if the stock price stays put, which it probably won’t.

And, while the focus of the Asian gaming boom is on casino giants such as Las Vegas Sands and Wynn, suppliers can play there, too.

One reason is that, while Asia is table game-focused, it is big enough to account for a lot of slot machines as it develops.

For example, Susan Macke of IGT recently noted that the number of slots in Macau has grown 420 percent since 2005.

And if casinos spread as many predict—through Japan, the Philippines, Korea, South Vietnam, Thailand, India—the total number of slot machines will be huge.

However, if the focus is table games, one supplier that surely stands to benefit is Shuffle Master, the biggest table game player in the world, yet still small enough that relatively modest revenue growth moves the needle.

That point was illustrated in Shuffle Master’s second quarter, when earnings blew past analyst estimates based in part on orders from the new Singapore. And there are more orders to come from Singapore, Shuffle Master said.

So, in the mine field of the rocky and uneven economic recovery, there may still be opportunities for the careful investor.

    Related Articles

  • Bad News, Good News

    Declining gaming earnings and subsequent stock declines were expected, but the result is good bargains

  • Diamonds in the Rough

    A few companies show the way to succeed in a flat market

  • Little Giants

    Several small-cap companies offer value in a bear market

  • Best in Class

    There are a few stocks that truly are investment-grade

  • Show Me the Money

    Growth stories need to be written—and demonstrated—by the companies

    Recent Feature Articles

  • Funding the Future

    Gary Ellis’ vision of a cashless casino ecosystem with Marker Trax and Koin

  • Age of the ETG

    Electronic table games have grown from simple automated roulette machines into a genre that is steeped in innovation.

  • Online in Ontario

    Stakeholders deem Ontario a success, but also a work in progress.

  • Mixing It Up

    Developing slot floor strategies for emerging markets.

  • Gaming & Diversity: Staying the Course

    DEI has encountered big resistance of late. Here’s how gaming companies continue to build a fairer workplace.